Yes, to encourage employee participation, many employees offer to "match" employee contributions under a certain formula. For example, you might decide dto match 50 cents on every dollar your emplolyees contribute up to a maximum of 10% of their salary/wages. As an employer, you also have the option of making a discretionary contribution (nonelective contribution) to the employees' account. These contributions are subject to specific tests to ensure that they don't discriminate in favor of highly compensated employees.
For 2013, a highly compensated employee is an individual who:
- Was a 5% owner of the employer in 2012 or 2013, or
- Had compensation in 2012 in excess of $115,000 and, at the election of the employer, was in the top 20% of employees in terms of compensation for that year
Yes, the annual limit for elective deferrals (pretax and Roth combined) is $17,500 in 2013. Individuals age 50 and older, may make an additional yearly "catch-up" contribution. The "catch-up" contribution limit is $5,500 in 2013 and is indexed for inflation.
A 401(k) Plan that allows employees to designate all or part of their elective deferral as a qualified Roth 401(k) contribution. Roth 401(k) contributions are made on an after-tax basis just like Roth IRA contributions. Unlike pretax contributions, there's no up fron tax benefit, but if certain conditions are met, employee' Roth contributions and earning are entirely free from federal income tax when distributed from the plan.
Generally, a 401(k) plan is a valuable part of your benefit package and may be critical to helping you attract and retain quality employees. Your business may currently deduct (from business income) employer contributions it makes to the 401(k) Plan. A 401(k) Plan also offers a certain amount of flexibility with plan design and the type, frequency and amount of employer contributions.
Employees may find it easier to save for retirement through convenient payroll deduction. A 401(k) Plan also gives them flexibility to contribute pretax or after tax contributions (Roth) and investment earnings acccumulate tax deferred (or tax free if Roth 401(k) requirements are met) until they take a distribution from the Plan.
Yes, the Section 415 Annual Addition Limit may not exceed the lesser of $50,000 or 100% of the participants income in 2013. Annual additions are the aggregate of employee contributions plus, any employer contributions you make on befhalf of the employee plus, any reallocated forfeitures. Catch up contributions of up to $5,500 may be made over and above this annual addition dollar limit.
The term "401(k) Plan" is a popular name for a qualifed cash or deferred arrangement (CODA) permitted under Section 401(k) of the Internal Revenue Code (IRC). It has become one of the most popular types of employer-sponsored retirement plans.
With a 401(k) Plan, an employee can elect to receive wages from his/her employer immediately or defer a portion of that income into their account in the Plan. The amount deferred (called an "elective deferral" or "elective contribution") isn't currently included in the employee's income: it's made with pre-tax dollars. The deferred portion is taxed to the employee when it's withdrawn or distributed.
Generally, plan participation must be offered to all employees who are at least 21 years of age and who worked at least 1,000 hours in the previous year. Two years of service may be required for participation in a discretionary employer contribution. Consequently, if your plan includes both employee and discretionary employer contributions, you could have two eligibility requirements. You may include less (but not more) restrictive requirements.